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Next Retail M&A: Look to Lifestyle Brands

Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Jeanine Poggi joined NBR Tuesday (watch video and read transcript here) to discuss the recent merger activity in retail -- and which companies could be next.

NEW YORK ( TheStreet) -- VF Corp.'s (VFC - Get Report) $2.2 billion acquisition of Timberland (TBL) revealed a new trend emerging in retail mergers and acquisitions: the interest in retail brands rather than retail stores.

"By purchasing a brand, an acquirer is able to carefully expand the distribution platform instead of entering into economically bad leases, gain instant space and relationships at wholesale and create lifestyle product platforms," says Wall Street Strategies analyst Brian Sozzi.

The buyout of Volcom (VLCM) by private-equity firm PPR for $607.5 million in April is another example of this trend.

The retail landscape has been ripe for buyouts, both strategic in nature and from private equity. Deals were kick-started at the end of 2010 with the acquisitions of J.Crew, Gymboree and Jo-Ann Stores.

Word on the Street

Wall Street has been aflutter over rumors of other possible buyouts, with investors hoping to get in on any deal before an offer ultimately sends the stock on a tear.

There have been many retail casualties in recent weeks as the risk of inflation and softer consumer spending have emerged, creating attractive entry points for bidders.

But there's also a lot of noise out there, and not all retailers with stocks in the doldrums have a deal waiting on the sidelines.

Some qualities that make a retailer attractive to prospective bidders include the potential for the company to regain its dominance under new management, its viability in international markets, any hidden gems that could become catalysts for the stock and its strength as a lifestyle brand, Sozzi noted.

Sozzi called out five retailers that fit these criteria: Urban Outfitters (URBN), Coach (COH - Get Report), Tiffany (TIF - Get Report), Under Armour (UA - Get Report) and Polo Ralph Lauren (RL - Get Report).

Tiffany and Ralph Lauren, in particular, were in the spotlight last week, after rumors surfaced that two private-equity firms may be interested in the luxury retailers.

Cartier owner Richemont may be looking to expand its jewelry business with Tiffany. Tiffany has been working to expand its watch business through a joint venture with Swatch, so partnering with Cartier, which is famous for its time pieces, may not be that far-fetched.

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TLB $0.00 0.00%
COH $42.11 0.38%
GPS $41.43 -1.43%
RL $134.29 -0.48%
UA $75.79 0.37%


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S&P 500 2,101.04 +2.51 0.12%
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